N.Y. Regulator Wants Insurers To Check Their Finances

The New York Insurance Department announced today that it is giving all carriers orders to give their finances a good stress test for regulators to examine.

The department said that based on concerns about the current financial turmoil, it will begin reviewing the processes insurance companies use to evaluate how changing economic conditions affect their financial stability.

"The Department expects every insurer to have scenario stress testing in place as a part of prudent management. The Department intends to review those processes, including investment functions, to discern how different economic scenarios are analyzed by senior management to determine what actions are warranted," said New York Insurance Superintendent Eric Dinallo.

The department noted that most insurers already conduct financial stress testing as part of their normal business practices, adding that, "in light of the recent turmoil in the financial markets," it is advising insurers that it will review their stress-testing processes.

The department said its reviews conducted by its Property, Life, Health and Capital Markets Bureaus will include assessing how market changes--such as interest rate shocks, changes in credit quality and liquidity, and collateral calls--could potentially affect an insurance company's financial condition.

It said the results of stress testing will enable insurers to assess the effect of different economic scenarios on their businesses. The results of stress testing should be incorporated into the insurers' decision-making processes, the department advised.

The stress test reviews--announced in a "circular letter" advisory to state-licensed insurance companies Letter #25 (2008)--is online at http://www.ins.state.ny.us/circltr/2008/cl08_25.pdf.